Major organized conflicts over the last 100 years have relied increasingly on air power. Military aircraft make decisive differences between the relative war capabilities of violently opposed nations. It is also a vital ingredient of deterrence for potential threats to homeland security. The stock market potential of the Aerospace & Defense Industry is extremely sound.
Brazil, Russia, and China have some civilian aircraft manufacturing potentials. However, they are not significant in the face of the entrenched positions of the United States and Europe. The latter has suffered from a series of management set-backs, leaving a field open for U.S. companies. India and China lead the world in demand for new civilian aircraft, and there are global requirements for more energy-efficient models. This phenomenon adds to the business values of the Aerospace & Defense Industry.
We have a similar position with respect to outer space. Though a handful of nations are able to launch satellites and even plan moon landings, the U.S. lead, even with budgetary restrictions, will take decades to close. All objects put in orbit around the earth, and which involve inter-planetary travel, spawn a host of supportive and ancillary industries. This has interesting investing implications for the stock market.
The nature of the Aerospace & Defense Industry implies long gestation periods for new projects. The entire Capital Goods Sector deserves a long-term perspective for optimal stock investing. The Aerospace & Defense Industry has appreciated by over 30% during the last five years, outpacing the S&P 500 by a wide margin in the process.
The Capital Goods Sector raises visions of giant market capitalization. That is why it is a pleasant surprise to note that more than 50% of the stocks listed from the Aerospace & Defense Industry have market capitalizations below $900 million each. Some of these exhibit attractive stock price trends, with Profit to Equity Ratios below 15.
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